At what rate will GST be charged on food supplied to hospitals?
The Telangana State Authority of Advance Ruling (AAR) ruled that 5% GST is applicable on food supplied to hospitals including private hospitals, government hospitals, and autonomous bodies on outsourcing basis, with the condition that Input Tax Credit (ITC) cannot be availed.
Whether food supplied to hospitals, i.e. private hospitals, government hospitals and autonomous bodies on outsourcing basis, is chargeable or not under GST Law?
The applicant (caterer) M/s. Navneeth Kumar Talla has sought the advance ruling before the Telangana Authority of Advance Ruling (AAR) on the above mentioned issue.
Facts of the Case:
- Applicant is engaged in supplying food and beverages at the canteen of their customers.
- The Applicant himself did not get paid for by the consumers of the food and beverages.
- The Recipient of the services are hospitals who enter into contract with the applicant.
- The charges are received from the hospitals on monthly basis on the coupons collected.
- Basically, the Applicant was vested with management of the canteen facilities.
Advance Ruling was sought for:
The applicant requested to clarify:
- Whether GST was chargeable on food supplied to Hospitals i.e. Government Hospital, Private Hospitals and Autonomous Bodies on outsourcing basis?
- If GST is chargeable what will be the tax rate? If no GST is chargeable on the Supply of food, will the GST already paid by the Hospitals and remitted to Government be recoverable from their future bills?
Proceedings of AAR
Are Services provided by the applicant covered under the Exemption Notification?
1.Notification No. 12/2017 deals with exemption of services under GST. According to Entry 74 of Notification No. 12/2017- Central Tax (Rate), services by way of-
a. health care services by a clinical establishment, an authorised medical practitioner or para-medics
b. services provided by way of transportation of a patient in an ambulance, other than those specified above.
2. It can be inferred from Entry 74, that exemption is available only when the clinical establishment itself provides this service (supply of food) as a part of health care services to the in-patients.
3. The same is not available, when such supply of food and beverages is made by a person other than clinical establishment based on a contractual arrangement with such establishment.
4. Therefore, AAR held that GST is payable on supply of the services by the applicant to Hospitals and no exemption is provided in respect the same.
Reference to Notification No. 11/2017- State Tax (Rate), Dt. 29-06-2017 to determine the rate of tax
- To decide the rate of tax in respect of the supply of services by the applicant, reference was made to Notification No. 11/2017- State Tax (Rate), Dt. 29-06-2017 which provided the rates of tax in respect of various services.
- As per SI. No. 7(i), Supply of service or in any other manner whatsoever, of goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, neither having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year nor having licence or permit or by whatever name called to serve alcoholic liquor for human consumption will be taxed at 6%.
- As per SI. No. 7(v), Supply, by way of or as part of any service or in any other manner whatsoever in outdoor catering wherein goods, being food or any other article for human consumption or any drink (whether or not alcoholic liquor for human consumption), as a part of such outdoor catering and such supply or service is for cash, deferred payment or other valuable consideration will be taxed @9%.
Reference to Notification No. 46/2017 – State Tax (Rate) to determine the rate of tax
- The tax rates under SI. No. 7 came under Scrutiny and the same was taken up by the GST Council for consideration. Tax Structure of different categories of Restaurants, with a view to their possible rationalization / reduction was mandated to be examined.
- Council agreed to apply tax rate of 5% tax without ITC on all standalone restaurants and a rate of tax of 18% with ITC on a restaurant in a hotel having room of declared tariff of more than Rs 7,500 per night.
- The take away food from a restaurant shall have similar tax treatment as that for the restaurant. Outdoor catering shall, however, attract tax at the rate of 18% with input tax credit and there would be no change in Composition scheme for restaurant.
- Accordingly, Notification No. 11/2007 – State Tax (Rate) was amended vide Notification No. 46/2017 – State Tax (Rate) and SI. No. 7(i) was substituted.
- As per the amendment, Supply, by way of any service or goods, being food or any other article for human consumption or drink, where such supply or service is for cash, deferred payment or other valuable consideration, provided by a restaurant, eating joint including mess, canteen, whether for consumption on or away from the premises where such food or any other article for human consumption or drink is supplied, other than those located in the premises of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of accommodation of at least Rs 7500 per unit per day or equivalent will be taxed @2.5%.
- Such reduced rate will be applicable only if ITC charged on goods and services used in supplying the service has not been taken
- No amendment was made in Sl. No 7(v) of Notification No. 11/2017 State Tax (Rate) Dt. 29-06-2017.
- It was thus evident that the intention of having tax rate of 5% as in Sl.no 7(i) was only in respect of supply of foods in Standalone restaurants and other similar eating joints and in Hotels wherein the declared tariff of any unit of accommodation is less than Rs 7500.
- It was applicable in cases where the consumers who purchase the food & beverages, do so on the premises of the supplier of such food & beverages and directly pay to such supplier.
- As per the contract furnished by the applicant, it was seen that the applicant prepared food using his own labour at the premises of hospitals, who were the recipient of the service, and the applicant supplied food to consumers who didn’t make payment to the applicant. The applicant was paid only by the hospitals.
- The GST Council decisions clearly differentiated a restaurant/ canteen/ mess run independently and the services extended by the applicant which fall under the category of outdoor catering and the decision to lower the tax rate only to restaurants had been taken by the council.
- Therefore, the supply of food by the applicant in the premises of client, whether prepared in that place or brought and served was more appropriately covered by the description at Sl.No. 7(v) of the Notification No. 11/2017- State Tax (Rate) Dt. 29-06-2017 and was liable to tax at 9% CGST and 9% SGST.
Reference to Notification No. 13/2018 – State Tax (Rate) to determine the rate of tax
- GST Council in the 27th Council Meeting reiterated that entry relating to composite supply of food and drinks in restaurant, mess, canteen, eating joints and such supplies to institutions (educational, office, factory, hospital) on contractual basis are taxed at GST rate of 5%.
- Council made it clear that the scope of outdoor catering under 7(v) is restricted to supplies in case of outdoor/ indoor functions that are event based and occasional in nature.
- To give effect to the above decision of the Council, Notification No. 46/2017 -State Tax (Rate), Dt. 12-12-2017 was amended vide Notification No. 13/2018 – State Tax (Rate), Department, Dt. 20-08-2018.
- An explanation was added to Sl No 7(i) which stated that this item includes such supply at a canteen, mess, cafeteria or dining space of an institution such as a school, college, hospital, industrial unit, office, by such institution or by any other person based on a contractual arrangement with such institution for such supply, provided that such supply is not event based or occasional.
- It was thus clear that Sl No 7(v) now only covered supply at functions which are occasional and event based.
- The supply of food to institutions which were earlier covered under entry at Sl.No.7(v) was now included under Sl No 7(i).
- The applicant was making supply of services in the dining space of the hospitals which is squarely covered in the Explanation 1 to Sl No 7(i) and thereupon is liable to tax at the rate of 5% subject to the condition that credit of input tax charged on goods and services used in supplying the services has not been taken.
Reference to Notification No. 27/2018 – State Tax (Rate) to determine the rate of tax
- Notification No. 13/2018 – State Tax (Rate) was slightly amended vide Notification No. 27/2018 – State Tax (Rate). As per Notification No. 27/2018 – State Tax (Rate) the words “school, college” shall be omitted in Sl No 7(i).
- Notification No. 11/2017 – State Tax (Rate), Dt. 29-06-2017 was totally revamped as per the 37th GST Council Meeting held on 20-09-2019 and Notification No. 20/2019-CT (Rate), dt. 30-09-2019, was issued.
- As per Notification No. 20/2019-CT (Rate), revised Sl No. 7(ii) of Notification No. 11/2017 – State Tax (Rate) entry is that Supply of ‘restaurant service’ other than at ‘specified premises’ shall be taxed @ 2.5%
- In terms of the above amendment, from 01.10.2019, the supply of food by the applicant to hospitals will fall under entry no. (ii) of Sl No. 7 of Notification No. 11/2017 – State Tax (Rate), Dt. 29-06-2017 and is subject to 5% GST with the condition of non-availability of input tax credit.
Thus, the food supplied to hospital i.e. Government Hospitals, Private Hospitals and Autonomous Bodies on outsourcing basis is chargeable to GST.
However, the supply of food to hospitals by the applicant depends on the time period (during which they are supplied) and will be subjected to tax as per the provisions of Notification No. 11/2017 – State Tax (Rate) amended from time to time. For the period from 01.07.2017 to 26-07-2018, 18% (CGST 9% + SGST 9%) will be considered and for the period from 27.07.2018 onwards – 5% (CGST 2.5% + SGST 5%) will be considered, provided that credit of input tax charged on goods and services used in supplying the service has not been taken.